Many small-to-medium sized charitable not-for-profit organizations think of finance as a separate function within their organization. Often, the extent of the involvement of finance is considered to be bookkeeping, quarterly financial statements and an audit at the end of the year. However, nowadays people are collaborating and working in teams, and finance has to be part of this movement. Finance can be a driver to support organizations to effectively meet their mission and goals, and doing so demonstrates good stewardship to stakeholders and sustainability of the organization. Here are six key areas that finance contributes to your mission:
1. Strategic planning: Organizations, often with the assistance of consultants, prepare very high quality strategic plans that map out their future. Often the ideas are great but the funding is not available to fully implement the plan. Finance must be integrated with the strategic planning process to ensure that thought is given to how the plan will be funded. The impact of new funding sources, strategic partnerships and cost efficiencies should all be considered. A simple cash flow projection can be prepared to bring all this together.
2. Metrics: Funders do a thorough job of setting out the reporting requirements attached to their funding. This is key and must be followed, but consideration should also be given to the metrics that will internally monitor and ensure the efficient and effective use of the funds. Other stakeholders, such as service users or members, are also entitled to be confident that good stewardship is taking place. Internal metrics and controls will be required to show excellent financial management as well as excellent operational management, and finance should play a lead role in this area.
3. Budgets: Traditionally, budgets are mostly developed from prior year numbers and results. The budget process needs to be robust and include consideration of any efficiencies or economies of scale that can be implemented to ensure that funds are well spent. An approach of using prior year numbers misses this opportunity. Finance staff know the details behind expenditures and are uniquely placed to engage in this exercise. Good financial management also includes preparing a budget for the next three years so that plans can be made well in advance.
4. Risk Management: Losing government funding is a major risk for not-for-profits and, for some, the impact can be fatal. Many factors need to be carefully monitored to ensure that this does not happen. Finance has a large role to play in the internal monitoring and reporting of programs as mentioned above. While risk assessment lies ultimately with the board of directors, the information that they rely on to make this assessment can be developed in partnership with the finance function. Internal and external risks can then be carefully monitored and evaluated.
5. Capital Investment: Investment in capital assets is a decision that will have consequences for an organization for years to come, so it is important that the decision be correctly made. Different factors need to be taken into account, especially financial considerations. While funding may be available it is important that the money is spent wisely and that the project is well set up for success. Prior to a funding application, different financial strategies should be explored, which will only add to the strength of any subsequent application. The finance function can prepare analyses such as lease vs buy calculations to ensure good financial management.
6. Funding Development: Finance must work closely with development and a team relationship should be encouraged. Development need to be informed of the accounting treatment of their planned fundraising sources. Overall, the organization needs to know how funds received will be shown on the audited financial statements. Under Canadian accounting standards there are different treatments depending on the nature of the funds and the conditions attached. The finance function has the expertise to advise on this so that the treatment is clear.
Organizations should always strive towards achieving good financial health. All strategies and operations of a not-for-profit have a financial element, and your finance team has the knowledge to support good financial stewardship and organizational sustainability. The days of working in silos are over – it’s time for better teamwork and collaboration.
Stephen Bradford is the principal owner of Strategic Financial Management, advisor to charitable not-for-profits with particular interest in the social services sector. He has worked for one of Canada’s leading not-for-profit accounting and consulting firms and has experience as an executive director of a charitable not-for-profit organization. Services include building strong financial stewardship to support an organization meeting its mission. His profile is available on LinkedIn and you can reach him by email at firstname.lastname@example.org.